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EU regulation has cost the UK £124 billion since 1998, 71% of the total cost

30 Mar 2010
Open Europe has today published the most comprehensive study to date on the cost of regulation to the UK economy. Based on over 2,300 of the Government's own impact assessments, Open Europe finds that regulation has cost the UK economy £176 billion since 1998 - roughly equivalent to the country's entire budget deficit. Of this amount, £124 billion, or 71%, had its origin in EU legislation.

While the UK Government and the EU have taken positive steps to make the laws they pass less burdensome, the cost of regulation to the private and public sector keeps on going up every year.

Since the UK Government launched its 'Better Regulation Agenda' in 2005, the annual cost of regulation has doubled. This is in no small part due to a failure to stem the flow of new, costly EU regulations.

We estimate the benefit/cost ratio of EU regulations at 1.02, while the ratio of UK regulations is 2.35. In other words, for every £1 of cost, EU regulations introduced since 1998 have only delivered £1.02 of benefits, meaning that it is 2.5 times more cost effective to regulate nationally than it is to regulate via the EU.

Open Europe Research Analyst Sarah Gaskell said:

"This shows the massive influence the EU has over our economy and everyday life. Whether we think this is a good or a bad thing, politicians can no longer be in denial over the extent of this influence and must dedicate much more attention to the EU in the run up to the General Election."

"Our research clearly shows that it's far more cost-effective to regulate domestically than is it is to legislate through the EU. This means that passing laws as close as possible to the citizen is not only more democratic, but also vastly cheaper. The next UK Government must take a radical new approach to cutting down on the many, and often unnecessarily costly laws coming from the EU."

"Fewer and better regulations would give Europe a massive economic boost, at a time when it is facing high unemployment, low growth and a declining share in world trade."

To read the executive summary of the study, see below.

To read the full study, please follow this link:

http://www.openeurope.org.uk/Content/Documents/PDFs/stilloutofcontrol.pdf

NOTES FOR EDITORS

1) For more information, please contact Sarah Gaskell or Mats Persson on 0044 207 197 2333 or 0044 7971 814 442 (Sarah) or 0044 779 94 606 91 (Mats).

2) Open Europe is an independent think-tank calling for reform of the European Union. Its supporters include: Sir Stuart Rose, Executive Chairman, Marks and Spencer plc; Sir Crispin Davis, Former Chief Executive, Reed Elsevier Group plc; Sir David Lees, Chairman, Tate and Lyle plc; Sir Henry Keswick, Chairman, Jardine Matheson Holdings Ltd; Lord Sainsbury of Preston Candover KG, Life President, J Sainsbury plc; Sir John Egan, Chairman, Severn Trent plc; Lord Kalms of Edgware, President, DSG International plc; Hugh Sloane, Founder, Sloane Robinson.

For a full list, please click here:

http://www.openeurope.org.uk/Page/Supporters/en/LIVE

EXECUTIVE SUMMARY

This is Open Europe's second report analysing the cost of regulation in the UK since 1998, when the British Government began to produce Impact Assessments for regulatory proposals.

Since last year, we have analysed an additional 320 Impact Assessments, putting the total number of IAs studied above 2,300. This arguably represents the most comprehensive study to date of the cost and flow of regulations introduced in the last eleven years.

The purpose is twofold: on the one hand, to measure the cost of regulation to the economy over the last eleven years, and, on the other, to measure the proportion of that cost coming from EU legislation.

Our research into the cost of regulation is divided into three categories:

· The cumulative cost of regulation, which is the sum total cost of regulation coming into force since 1998

· The annual cost of regulation, which is how much regulations adopted since 1998 cost the economy each year

· The benefit/cost ratio of regulations

KEY FINDINGS:

Since our last report we have noticed evidence of genuine progress arising from UK and EU initiatives to cut down on and simplify regulations. While this is encouraging, there is still a long way to go. Overall, the cost of regulation keeps going up year on year, and the economic downturn has added pressure for new, hastily formulated laws which risk adding unnecessary burdens on businesses and the public sector.

Cost of regulation keeps on going up

· Since 1998, regulation introduced in the UK has cost the economy £176 billion. This is roughly equivalent to the UK's entire budget deficit[1], or 12.6% of GDP.[2] Of this, £124 billion, or 71%, had its origin in the EU. This means that EU regulation in the past eleven years has cost every UK household an average of £4,912.[3]

· The annual cost of regulation in 2009 stands at £32.8 billion. For this amount, the Government could cut corporation tax by two thirds.[4] Since the UK launched its 'Regulatory Reform Agenda' in 2005, the annual cost of regulation has doubled (up from £16.5 billion).

· 59% of the cost arising from regulation in 2009 stemmed from EU legislation. In 2008, the equivalent figure was 65%. Over the last eleven years, on average, the annual proportion of the EU-derived cost is 72%. The proportion of EU regulation as a share of the total has tended to go down in recent years.

Domestic regulations are 2.5 times more cost effective than EU laws

· We estimate the benefit/cost ratio of the regulations we studied at 1.58. In other words, for every £1 of cost introduced by a regulation since 1998, it has delivered £1.58 of benefits. However, the benefit/cost ratio of EU regulations is 1.02, while the ratio of UK regulations is 2.35.

· This means that UK-sourced regulations deliver a benefit almost 2.5 times higher on average than regulations coming from the EU. For every £1 of cost, EU regulations introduced since 1998 have only delivered £1.02 of benefits. Expressed differently, it is 2.5 times more cost effective to regulate nationally than it is to regulate via the EU. This also means that EU regulations come dangerously close to failing an overall cost-benefit analysis.

· This is a clear argument in favour of regulating at the local or national levels as much as possible, and an indication that deregulation efforts should be targeted at the EU level.

EU labour market laws account for 22% of the total cost of regulation

· EU employment legislation introduced since 1998 has cost the UK economy £38.9 billion. This means that 22% of the overall cost of regulations introduced in that period in the UK can be sourced to EU employment laws alone.

The Government's claims to have cut the cost of regulation do not stack up

· The UK Government has taken positive steps to increase the transparency and accountability surrounding regulation, and has also improved the quality of its Impact Assessments.

· However, while improvements are being made, the Government's initiatives are not striking deep enough to have a lasting impact on the overall regulatory environment. 30% of businesses state that it has become more difficult to comply with regulation in the last 12 months - only three percent believe that it has become easier. In no small part, this is down to the failure to stem the flow of new EU regulations.

· At the same time, the UK Government's claimed savings in regulatory costs do not match the figures we have extrapolated from its own Impact Assessments.

The Conservatives offer hope - but need to turn their attention to EU regulation

· The Conservatives have proposed a series of fresh regulatory reforms that are innovative and could cut the cost of regulation. However, the Conservatives have chosen to focus their regulatory reform agenda almost exclusively at the domestic level.

· This, in turn, could lead to contradictory or undeliverable policies since a potential future Conservative government will only on average have full control over 28% of annual the cost of regulation. The Conservative Party needs to make it a priority to set out how they intend to apply their domestic reform proposals to the EU decision-making process.

Some progress at the EU level - but cultural change in Brussels is moving slowly

· The European Commission is pursuing some worthwhile initiatives to cut regulation. However, the prevailing culture in Brussels is still 'more regulation means more Europe'.

· The financial crisis and the recession have created a greater pressure for rushed regulation that threatens to roll back the positive steps that the Commission has taken so far.

· Since 2003, the European Commission has only dropped four proposals following a cost-benefit analysis.

Reform is possible: 30 ways to cut red tape

· Fewer and better regulations would give Europe a massive economic boost. This is possible but a radical new approach is needed. We set out 30 ways to achieve this, with particular focus on strengthening the filters at the beginning of the EU's decision-making process.

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[1] According to the 2009 Pre-Budget report, the UK's estimated budget deficit in the 2009/10 financial year is £177.6 billion.

[2] UK GDP in 2009 is estimated at £1,396,474,000,000 by Eurostat.

[3] Estimates by the Office of National Statistics put the number of UK households at 25.29 million in 2006, see http://www.statistics.gov.uk/STATBASE/ssdataset.asp?vlnk=7678

[4] According to the Treasury's latest Public Finances Databank (February 2010), corporation tax receipts amounted to £43.1 billion in the 2008/09 financial year, see http://www.hm-treasury.gov.uk/psf_statistics.htm

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